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Strategic Behavior between a Bank and A Microfinance Institution: The Role of Psychological Distance and Education Level

Author

Listed:
  • François Fall
  • Thanh Tam Nguyen-Huu

    (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School)

Abstract

In Hotelling's fundamental model (1929), the geographical distance and high transportation costs grant firms present in a market a certain power over local buyers in their neighborhoods. Starting from his model, this study shows that in the competition between a bank and a microfinance institution (MFI), geographical distance and transportation costs alone are no longer sufficient for attributing market power to the firms present. In fact, the introduction of psychological distanceand education level in the model alter the Hotelling's results. Psychological proximity (trust) and the educational level of the client play determinant roles in dividing the credit market between a bank and an MFI.

Suggested Citation

  • François Fall & Thanh Tam Nguyen-Huu, 2022. "Strategic Behavior between a Bank and A Microfinance Institution: The Role of Psychological Distance and Education Level," Post-Print hal-04248194, HAL.
    • Handle: RePEc:hal:journl:hal-04248194
    DOI: 10.1353/jda.2022.0062
    Note: View the original document on HAL open archive server: https://hal.science/hal-04248194v1
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    References listed on IDEAS

    as
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    2. repec:idb:brikps:78872 is not listed on IDEAS
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    5. Delfiner, Miguel & Peron, Silvana, 2007. "Commercial Banks and Microfinance," MPRA Paper 10229, University Library of Munich, Germany.
    6. Chiappori, Pierre-Andre & Perez-Castrillo, David & Verdier, Thierry, 1995. "Spatial competition in the banking system: Localization, cross subsidies and the regulation of deposit rates," European Economic Review, Elsevier, vol. 39(5), pages 889-918, May.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    C72; D43; spatial competition bank microfinance market power G21 O17 C72 D43; spatial competition; bank; microfinance; market power G21; O17;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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